#12 Project Schedule Cash flow predictions

Cost estimates for labor, materials and equipment without an overhead and profit component represent direct costs for on site construction activity.



Overhead cost estimates represent off-site indirect costs including home office management of the project, cost line of credit or borrowing, insurance, training, safety programs...



The ratio of construction activity direct costs between labor, materials and equipment will vary by type of activity, using NCCE we can view cost ratios;



-site grading can be accomplished with large equipment and a relatively few workers per piece of equipment and minimal material costs



-asphalt paving requires a large cash outlay for materials, use of large pieces of equipment and a relatively large number of workers per piece of equipment, but the material cost dominates



-layout work is skilled labor intensive with no accounting for equipment costs, it is possible to provide cost for stakes and reference points but they represent a relatively minimal cost for the task



For the purposes of creating cash flow predictions we will group labor, equipment and material into a single cost value.



The payment voucher reports this value plus overhead and profit as "completed and stored to date". The payment received by the GC from the owner is this value less retainage less received to date.



Assuming the project delivery each voucher period is a perfect match to the project schedule, in reality some tasks will have problems that produce delays and some items may have been scheduled with excess pessimism.

Assuming cash outflow cost are experienced simultaneous with task activity.

Cash outflow from the GC for "direct costs" on-site cost items may be due at differing times;

Labor;

-payroll each week

Materials;

-pay when ordered

-pay before delivery

-pay when received

-30 day payment

Components;

-pay in advance for shop drawings

-pay deposit for fabrication

-pay before delivery scheduled

-30 day payment

Equipment;

-portion of lease and maintenance cost applied to task

-rental payment in advance

-portion of equipment loan and maintenance applied to task

As we noted from a previous assignment comparing labor, materials and equipment costs with duration of project a single material group "asphalt" may have a disproportionate impact on cash outlay.

The objective of the scheduling exercise is to provide the GC's team with information on optimal resource allocation. The MS Project software provides for the opportunity to test differing scenarios.

The object of the cost estimating and schedule of values exercises in conjunction with scheduling provide the GC's team with information on allocation of cash resources and advance information on borrowing or line of credit needs.

Final assignment due Sunday August 9 not later than midnight;

Introduce a change order for wood light poles assume approved for voucher period #2
Revise schedule of values, MS Project Schedule and multi line graph.

For the purpose of the exercise delete the entire metal pole assembly and replace with the wood pole assembly.

Discuss how this change impacts the GC and the Owner.

#11 Return to GC's Project Schedule - Lead Time - Submitals - Delivery

Identify off-site tasks;

Subcontractors;
-scope of work
-negotiate subcontract
-availability
-equipment to be supplied by GC
-materials to be supplied by GC

GC workforce;
-trades required for tasks, scope of task
-trades available within GC's permanent workforce
-trades to be hired for task, for project

GC equipment;
-equipment required for tasks
-equipment available within GC's stable
-equipment to be rented/leased
-equipment to be purchased
-fuel and service equipment during project

Materials;
-materials required for tasks
-identify GC or subcontractor supply
-identify sources
-negotiate cost, deliver or GC pick-up
-identify submital requirement and approval schedule

Components
-components installation tasks
-workforce and equipment requirements
-submital and approval schedule
-negotiate cost, deliver, or GC pick-up

Clean-up

-GC workforce required for general site mantainance and periodic clean-up

Example;

Off site arrangements for task; Metal light pole system;

Subcontractors;
-Rigger
-Excavator
-Concrete Sub
-Electrician

Equipment;
-Boom truck by rigger
-Auger and trencher by excavator
-Bucket truck by electrician

Materials;
-Concrete; order and pay ready mix by concrete subcontractor
-tube form; supply and install by concrete subcontractor
-reinforcing cage; supply and install by concrete subcontractor
-conduit and cable; supply and install by electrical subcontractor
-PA 2B or stone dust cable trench fill by excavation subcontractor
-crushed stone base for concrete by excavation subcontractor

On site inspections
-3rd party engineer inspections by GC's testing subcontractor
-Local building inspector, call inspection request by GC's site supervisor

On site layout including elevation reference
-Layout survey crew by GC's survey consultant

Components -Metal Light Pole
-Negotiate price, delivery and ordered by GC
-Setting plate for top of concrete base (set by concrete sub from reference by layout crew)
-Light pole (rigger install, electrician wire)
-Light fixtures (rigger hang fixture, electrician wire and install lamp)


Assignment; for Wednesday;
MS Project insert lead time; submital, order and delivery for light poles as a sub element under light poles.
You may negotiate with subs and suppliers before notice to proceed but probably not have a contract with subs or place order for components until order to proceed is issued.


Coming next:

#12 Project Schedule Cash flow predictions

Final assignment due Sunday August 9 not later than midnight;


Introduce a change order for wood light poles assume approved for voucher period #2

Revise schedule of values, MS Project Schedule and multi line graph, Discuss how this change impacts the GC and the Owner.

#10 Payment voucher/cash flow

Text Chapter 11 Controlling Project Cost, Time and Quality; Construction Project Management by Gould and Joyce

Project Estimated Cost / Project Actual Cost Difference
-Subcontracts
-Materials
-Components
-Labor
-Site Conditions

Project Control and Monitoring / Feedback Loop
-Reports from field
-Schedule adjustments
-Ontime resource supply
-Task duration
-Communication/direction
-Anticipated/unanticipated items

-OSHA compliant site
-Trash and debris control

-Staging and handling materials and component delivery

-Quality control procedure

Excessive Project Control
-Understanding knowledge base of the workforce and subcontractors and learning curve.

Tracking tasks;
-Scheduled activities
-Duration
-Resources/shared resources
-Preceding and dependent tasks
-Direct task costs
-Indirect task costs

Cash Flow
-Scheduled payments to; suppliers, subcontractors, workforce...
-Overhead costs prorated to schedule payment periods
-Projected payment voucher receipts

Project Meetings
-Present; owner rep, architect/engineer, lender rep, agency rep, GC...
-Progress reporting, schedule revision, items of concern, anticipated progress.

Payment Voucher Project Meeting
-Items/tasks percentage complete for payment voucher meeting
-Documentation and submital requirements for task
-Meeting site walk through; is site organized, neat and undercontrol.



Assignment for Monday;
Prepare G703 for all 6 vouchers periods, include columns and totals for labor, materials, equipment, overhead, profit, total claimed to date each period and retainage.

Use excel to prepare a multi color line graph for items above; dollar vertical axis, time horizontal axis.

Include a few paragraphs below your graph and discuss your analysis of the information in the graphs


Coming next:
#11 Return to GC's Project Schedule - Lead Time - Submitals - Delivery
Assignment; for Wednesday; insert lead time; submital, order and delivery for light poles

#12 Project Schedule Cash flow predictions
Final assignment due Sunday August 9 not later than midnight;
Introduce a change order for wood light poles assume approved for voucher period #2
Revise schedule of values, MS Project Schedule and multi line graph,
Discuss how this change impacts the GC and the Owner.

#9 Schedule of values - Project Schedule - Value engineering

Schedule of Values
The bid may include a requirement for schedule of values formatted to work with AIA G703.

Information presented in a uniform format from all bidders will ease the process of bid evaluation.

Scheduled items that vary wildly across the bidders may indicate;
-the bid documents including drawings and specification are not adequately conveying information to the bidders.
-some of the bidders are not sufficiently experienced for this type or scale of project
-low prices may indicate a bidder profit margin to low for viability
-high prices may indicate a bidder that may not want to win the bid, but wants to be keep on the bid list for future projects.

The schedule of values may be modified in contract negotiations in the period between identification of the winning bid and contract signing;
-the GC may adjust values to better reflect actual costs as information from subcontractors and suppliers is refined, without changing the total agreed bid price.
-the Owner may request changes to reflect their analysis of the proposed work schedule and the owners own cost estimate, without change to the total agreed bid price.

The schedule values include overhead and profit percentage modifiers, which are GC's internal information only.

The owner may use the schedule of values in combination with the Project schedule to predict each months payment request value, to establish borrowing needs.

The GC may use the schedule of values in combination with the Project scheduled and additional excel columns for overhead and profit to predict project cash flow needs and profit potential during construction.

Project Schedule

A project schedule based on items from schedule of values will be prepared by the GC in the period between wining the bid and contract signing. The owner may required a detailed Gantt schedule for complex project with time critical elements.

The GC will for internal management use develop a more detailed Gantt schedule including time critical activities;
-negotiate and schedule material and component deliveries
-negotiate and schedule subcontractors
-submital schedules and shop drawing procedure
-resource management of equipment and workforce across multiple projects.

Value Engineering
Ideally value engineering should be part of the design process from feasibility through to issue of bid documents;
-asphalt surface or gravel, the gravel is porous and may reduce the costs for stormwater management, but will potentially increase operating costs for maintenance and potential damage to cars from loose gravel.
-overhead power to light poles, reduce trenching and conduit costs, but less attractive
-wood light poles in auger holes with compacted soil rather than metal poles with concrete base, lower cost but less attractive.

Value engineering during feasibility may inform the owner and guide budgetary discussion;
-how long will the site be used as a parking lot?
-what does the potential parking lot customer expect from an airport parking lot?
-what services and qualities do competing airport parking lots provide?

The owner for budgetary reasons may decide that that the aesthetic qualities of the parking lot represent a necessary cost for competitive reasons.

Value engineering prior to issuance of bid documents, may inform the owner on options for construction types that produce the quality desired within projected maintenance constraints at a lower cost.

Value engineering by the owners team may be performed by the design team, owners own staff or an independent value engineering consultant. The produce of the value engineering activity may be incorporated into the final bid documents, or may be provided as alternates for bid;
-the owner decides asphalt paving is a necessary expense for quality, liability and maintenance of the parking surface, but changes from metal light poles with concrete base and conduit, to wood poles with compacted auger hole and overhead wires producing same surface illumination at lower cost.

The owner may have light pole change as part of the bid document or keep the metal poles and have the wood poles as as alternate.

Value engineering during contract negotiations, may be driven by bid costs higher than anticipated or economic forces reducing project funding or projected revenue;

The owners team with the GC's team review the construction documents and specifications for potential cost saving items.

The procedure for value engineering before a contract is awarded should be provided in the information to bidders, and may include value engineering discussion with a number of the bidders.

The product of value engineering will be part of the revised schedule of values and contract drawing revisions.

Value engineering after construction contract signing, may be driven by the same pressures as during negotiations; economic conditions, changes in owner borrowing, changes in projected revenue.

Changes may be proposed by the owners team, or the owner may request the GC to investigate potential cost reductions.

Changes after the contract is signed will change the contract value by "Change Order".

Assignment for Wednesday;

Add three columns to your excel version of G703; overhead 12%, profit 12% and scheduled value sum of estimated cost + overhead + profit.

MS Project Gantt schedule for schedule of value items using duration from NCCE or guesstimate, with preceedors (some of you already have this)

Produce a G703 with work completed the first payment period, 1 month. Items in progress can be claimed as a % complete of scheduled value.

Coming next;

#10 Payment voucher/cash flow
Chapter 11 Controlling Project Cost, Time and Quality; Construction Project Management by Gould and Joyce
#11 Return to GC's Project Schedule - Lead Time - Submitals - Delivery
#12 Project Schedule Cash flow predictions

#8 Cost Estimate and Bid Documents

Read Chapter 7 Bidding and Procurement in Construction Project Management by Gould and Joyce
Factors of Bid Process

If a project has the ingredients necessary to return a good profit, the motivation to bid is high.

The factors that make one company succeed over another include:
- Relationships with key subcontractors
- Knowledge of and experience with the specific type of project
- Ability to buy out the job
- Estimating capability
- Project team setup
- Safety records
- How efficiently they conduct their business
- Overhead costs

Direct costs + Indirect Costs = Cost of the work
Cost of the work + % of Overhead and Profit = Total Cost to the Owner


Invitation to Bid/Bid Advertisement
-Abstract description of the project
-Critical time lines
-Contact information
-Information on obtaining bid documents
-Reference to regulatory requirements

Information contained within Bid Documents

-Instructions to Bidders
-Project Manual/Construction Documents
-Bidder Qualifications/Pre-qualified bidder
-Bid Form
-Alternatives
-Unit prices
-Bidder proposed alternatives
-Bid Addenda

Contractual Information
-Form of Owner/General Contractor Agreement (Contract)
-General Conditions of the Contract
-Special Conditions
-Bid Bond
-Performance Bond
-Insurance requirements
-Requests for bid clarification/question period and procedure
-Required prebid meeting
-Site availability to for prebid existing conditions review

Insurance

Workers’ compensation: State law that compensates employees who are injured on the job. (covers disability and medical treatments)

Comprehensive liability: Protects the contractor against third-party claims.

Builder’s risk: Property insurance for the building, while it is under control of the contractor. Protects against property damage during construction. (covers losses resulting from fire, smoke, water, explosions, vandalism, and theft)

Bonds

Bid Bond: If the contractor withdraws, he or she agrees to pay a percentage of the bid cost as stipulated in the bid documents—usually 5 to 10 percent of the bid itself.

Performance Bond: If the contractor goes bankrupt or otherwise cannot complete the work, the bonding company becomes liable for it.

Payment Bond: Also called labor and material bonds. This assures that the contractor will pay all the bills, thus leaving the owner unharmed by claims and liens.

Bid submital procedure
-Location Time and Date specific for receipt of bids and procedure
-Bid opening procedure, Location, Time and Date, public or private
-Definition of a complete and responsive bid

Bid analysis procedure
-Public agency requirements; public record
-Non-public entity; requirements developed to comply with regulatory requirements for entity
-Review of documents required with bid
-Review and comparison of bid total, requested itemized costs, requested unit costs, requested alternate costs, bidder offered alternates.
-Review of bidder qualifications and previous projects of similar type
-Review of credit history, accountants statement, current and prior legal actions.
-Review insurance and bonds

Contract Award procedure
Identify bid that conforms with definitions provided in bid documents for qualified responsive bidder in the best interest of owner, which may not be the lowest bidder. There owners bid team may identify a number of bidders that that fit this definition, the bid team may then meet with the bidders individually to review the bid before making an award of contract.

If a public entity; all bidders must be notified that a contract has been awarded, additional details for the notification may be required by regulation of the entity.

If a private entity; notification to other bidders of the contract award may be required by the structure of the entity and nature of regulation.

If any part of the bid process involves a publicly traded entity; Securities and Exchange Commission regulations must be followed, including limits on insider trading for all individuals that are part of the bid process.

Public agencies, publicly traded entities, private corporations and partnerships, and larger private entities will have legal staff review the bid procedure and award before an award is made.

Requirements; award of contract to notice to proceed
Upon award of contract the GC will commence assembling required project administrative documentation which may include;
-Project insurance for the site and proposed work
-General Liability insurance for the project, listing the owner
-Confirm other insurance including; workers compensation, vehicles and equipment
-Performance bond

Identify key GC staff for the project, and contact information;
-GC's Construction Management team and site supervision team

Schedule of Values
GC prepares final schedule of value for major work categories for use in payment request during construction, to be reviewed and approved by owners project team, with contract award total.

Project Schedule
GC prepares project schedule with major categories from schedule of value, to be reviewed and approved by owners project team. The GC for internal and project management use will prepare a more expansive and detailed project schedule.

Notice to Proceed
Upon satisfactory review by the owners team of required documentation, schedule of values and project schedule the owner will issue a "Notice to Proceed" with a specific date and time. The GC has sole control and responsibility for the project site, as defined in the notice to proceed, including access by owners team, until substantial completion.

The GC will commence preconstruction activity including;
-secure contract required permits and meet with local inspectors
-subcontract final negotiation and sign contracts
-material and component supply contracts
-meet with utility providers and confirm schedules
-initiate "One-Call" procedure
-schedule mobilisation activity

Commence on site activity

Assignment for Monday
Prepare schedule of values for payment voucher (major items without labor, material and equipment or quantity breakdown)
-Mobilization
-Storm water management during construction
-Site grade to establish rough sub paving grade
-Below grade permanent stormwater management system
-Light Pole complete system
-Curbing
-Paving system including stripping
-Concrete pads
-Prefab structure and gate control (allowance $175,000)
-Landscape (allowance $200,000)
-Permanent fence

Prepare project schedule for same items, an item may be subdivided into parts; A, B, C,... but don't create sub-elements for this schedule.
Use the crew hrs line for scheduled item duration from NCCE, or make a reasonable guesstimate.

Coming next;

#9 Schedule of values - Project Schedule - Value engineering

#10 Payment voucher/cash flow

Chapter 11 Controlling Project Cost, Time and Quality; Construction Project Management by Gould and Joyce

#7 Task cost estimate; mark-up, overhead, profit, competitive advantage

The preliminary cost estimate with subcontractor, material, component, including mark-up and labor costs, and general conditions items including temporary facilities, mobilization, on site testing and onsite management staff, will reach a development stage where further refinement produces minimal change and or time pressure to submit a bid establishes completion (at this time) of the cost estimate.

The cost estimate represent for the GC a prediction of the direct cost of performing the work of the contract, but does not include the cost of managing or funding the project

Overhead
Portion of home office expenses directly assigned to the project as a percentage of project cost
-Administrative staff and costs
-Office rent, lease or mortgage
-Utilities, insurance
-Cost of money; line of credit, direct borrowing, opportunity cost.

Profit
The GC's gross profit is the difference between all expenses to complete the project and the contract cost as expressed in the bid or negotiated with the owner/developer. A discussion on net profit is better left to accountants and tax professionals, and will in part be a function of the ownership structure of the GC.

The GC will establish a gross profit target to produce a cash surplus beyond the overall cost of the project. Part of the gross profit will be assigned to GC's expenses not directly allocated to the project; marketing, administrative cost for bids including those the GC does not win, accounting, legal costs...

The project target profit will be assigned as a percentage of the cost estimate and overhead.

Competitive advantage/disadvantage

An adjustment to the project bid price which may be a result of multiple cost factors including;
-Prior history of other bidders competing for the project
-Prior history of Owners project team including ability to timely meet financial obligations.
-Project time and location pressures
-Local political environment
-Local organized labor environment
-Local, regional and national economic environment including current economic and political events;

Philadelphia Stops Paying Vendors, Citing Cash Crisis
2:28 pm ET 07/17/2009- Dow Jones

By Peter Loftus Of DOW JONES NEWSWIRES PHILADELPHIA (Dow Jones)-

-Philadelphia's city government has stopped paying its vendors and suppliers, citing a cash crisis. Mayor Michael Nutter on Friday blamed the drastic move on the failure of the Pennsylvania legislature to act on his request for authorization to raise the city sales tax and change the formula for the city's contribution to its employee pension plan. Nutter says these items are necessary to help close a projected city budget deficit of $1.4 billion over the next five years. The sixth-largest U.S. city by population will delay spending on anything other than payroll, debt service and emergencies, until passage in Harrisburg of a state budget and laws related to the sales-tax and pension proposals. Philadelphia's sales tax would increase by one percentage point to 8% for five years under the proposal.


A cost adjustment for competitive advantage or disadvantage will be an adjustment to profit. assuming the GC is confident that a competitive advantage over other bidders will provide for a increase in profit and still keep the bid price in a wining position; the GC may be able to realise an increased potential profit.
Factors that may place the GC at a competitive disadvantage may result in reduction in potential profit or a bid price that is not in a wining position.

Wishful thinking may cause a GC to ignore or minimize disadvantages and exaggerate advantages.

Coming next;
#8 Project bid cost estimate and documents required with bid
Chapter 7 Bidding and Procurement in Construction Project Management by Gould and Joyce

#9 Schedule of values /Project Schedule

#10 Payment voucher/cash flow
Chapter 11 Controlling Project Cost, Time and Quality; Construction Project Management by Gould and Joyce

#6 Task cost estimate; workforce, materials, equipment.

Using National Construction Cost Estimator (NCCE)

Quantity take-off
All construction estimating, by any software program or hand written, use as a first step a "take off" of unit quantity from the contract or construction documents.

A square foot of brick work installed will have a material, labor and equipment component. The Unit cost of a installed element, brick work, can be costed as a complete assembly based on historical data, or can be broken down to sub-elements each with their own historical cost data.

National Construction Cost Estimator and most estimating software provide both assembly costs and sub-element costs based on the software companies past construction industry cost research reduced to statistical means.
So by definition all cost data is not current, and may not accurately reflect true costs for specific conditions and a particular project.

The software approach to cost estimating produces values for a typical project by a typical GC. Each project and GC with have specific conditions that may not be accounted for in the software, and take-off elements may not have an exact correlation in the software data base.

The quantity take-off, or quantity survey (a Chartered Quantity Surveyor in the countries of the British Commonwealth and Ireland is a licensed professional) provides a detailed list of quantities and components that will become materially part of the finished project, and the processes and operations to complete the project.

The Estimators Role
The GC's estimating staff, or estimating consultant in the first run of a project estimate assigns dollar values based on the GC's cost data from previous projects, quotes from sub-contractors and suppliers, and assigned values from estimating software where real numbers are not yet available.

The GC's project staff will review the first run of the estimate with a preliminary project schedule and may make adjustments to schedule and estimate. The estimate develops with updated information.

Subcontractor and component mark-up
The GC's project staff will assign mark-up percentages to each subcontractor, components and activities that are not performed directly by the GC.

The estimate at some point in time before the bid due date will reach a stage at which further refinement produces minimal change.

The GC's project staff will then review and assign percentages for overhead, profit and competitive advantage.

The assignment for Monday will be a sub-element assignment of cost from NCCE for asphalt paving and curbing, assume subgrade below stone base has been established, include layout crew. Do not include overhead and profit.

Coming next;
#7 Task cost estimate; mark-up, overhead, profit, competitive advantage
#8 Project bid cost estimate and documents required with bid
#9 Schedule of values /Project Schedule
#10 Payment voucher/cash flow


To be discussed;